Students to start repaying debt on income of just $45k

The start of July can have a lot of different meanings. It’s the start of having your social media flooded with your friends’ Europe photos. It’s the start of being able to eat soup whenever you damn well feel like it. It’s the start of Kmart always been out of stock of much-needed heaters.

It’s also the start of the new financial year (bring on those EOFY sales). But, unfortunately, July 1 has marked a decrease in the HECS debt compulsory repayment threshold.

As you fill out your tax return, it’s so easy to ignore that HECS figure down the bottom. It’s a later you problem. However, with the changes currently being implemented, it’s about to become a current you problem. So I recommend paying attention.

Prior to July 1, you didn’t have to start paying back your debt unless you earned more than $55,874. The repayment rates varied from 4% for those in the lowest repayment threshold bracket ($55,874-$62,238) to a maximum of 8% for those earning more than $103,766.

Now, as part of changes made in the 2016 Federal Budget, you need to start repaying when you earn more than $52,000 per year.

However, this isn’t even the worst of it.

As you may have heard in the media, there is currently a bill before Parliament which proposes lowering the repayment threshold to just $44,999. This is barely above minimum wage. On top of HECS debt, it will also include Fee-Help, Vet Fee-Help, OS-Help and SA-Help (aka all that money we don’t like to think about it).

To add insult to injury, the Government are also planning on capping the amount of HECS debt you can accumulate. They seek to place a lifetime cap on all HECS loans of $104,440 kicking off on 1 January 2019. While this isn’t exactly new for postgraduate students, undergraduate students will soon be feeling the pain. Medicine, dentistry and veterinary science students have their own cap at $150,000, but as a law student with a debt exceeding 25k, this is little consolation.

The only real silver lining of the situation is a proposed reduction in the percentage of your debt you have to repay. So while you need to start repaying it earlier, you don’t need to pay as large a proportion. The previous minimum percentage of 4% has been reduced to 1% for those earning between $45k to $52k. Also, only loans taken out after 1 January 2019 will count towards the cap.

While, thankfully, it hasn’t officially been passed, it does have Senate support. So unless key crossbenchers such as Pauline Hanson and Stirling Griff have a change of heart, it is likely the bill will be made official when Parliament re-commences sitting in August 2018.

Unless Pauline’s heart grows three sizes in one day, students will soon be feeling the squeeze.

Even though it is seemingly delaying the inevitable, the delay in passing the bill should hopefully mean the repayment requirements won’t come into force until 1 July 2019.

And don’t think fleeing somewhere warmer like all your friends on Eurotrip will save you either. In the past, graduates who moved overseas didn’t need to repay their debt. The government has decided to act on this cheeky loophole, which previously cost them $20-$30m in lost revenue.

You also used to be able to receive an extra discount on your loan if you made extra payment contributions. This is no longer the case.

This is just the latest in a series of moves by the Government to recoup what they’re calling the ‘rising cost of HELP Loans’. It is estimated that this reduction in the loan repayment threshold will add $245.2 million to the federal budget over a four-year period.

Now, I completely understand that the Australian government needs to implement strategies to help the economy out of its $551 billion worth of debt, but punishing students isn’t the answer.

If the Government is really that concerned with improving the bottom line, perhaps they shouldn’t completely overhaul the tax system, which will see those earning $41k paying the same tax rate as those earning more than $200k.

Leader of the Australian Greens, Richard Di Natale, has gone as far as labelling the new debt repayment thresholds as intergenerational theft, and it’s hard to disagree with him.

As a student, you generally don’t expect to start repaying your debt until you’ve graduated. But it’s a debt you have to start repaying regardless of whether you’re still studying or not, as long as you earn more than the minimum threshold.

If you’re earning the minimum $45,000 (or $865 a week), this means you’ll lose $8.60 a week. This might not seem like a lot of money, but over the course of a year it equates to $447. For those living pay cheque to pay cheque, this certainly isn’t ideal.

Essentially, if these changes go ahead, students will have no choice but to live off my above-mentioned soup. And as much as I love soup, I’d much rather be kept warm by knowing I had financial security.

Recent Posts

For mothers that have to be away from their children for work or study, 'mummy guilt' is common. But sometimes, writes Ayu Setiadewi, taking care of yourself and pursuing your dreams can be its own language of love to your little ones. […]